The European Commission has recently completed state aid procedures against, up to now, seven Spanish and five Dutch football clubs. The most prominent cases concern Real Madrid, FC Barcelona, PSV Eindhoven and FC Valencia. Therewith, a start in highly political state aid procedures has been made − but this trend is not only concerned with football, but goes far beyond that. Financing of or any privileges for professional sport entities could be a classified as illegal state aid and therefore be of a material risk for sports clubs and investors. For that reason stakeholders need to thoroughly review state aid implications as this has become quite an effective instrument of European competition law. A level playing field is not only guaranteed and supervised by internal sport competition rules but also highly influenced by European law.
Tax benefits as illegal state aid?
All clubs allegedly profited from various state benefits. Four Spanish clubs were, for instance, granted tax privileges in relation to corporation tax (Commission Decision (EU) 2016/2391). The clubs concerned were, in fact, classified as nonprofit organizations by the respective authorities. This classification resulted in a lower tax burden on profits compared to the other clubs in Spain which had to convert into sport limited companies. Regarding the fact that nonprofit organizations may have fewer possibilities of access to the capital market, the lack of the possibility to sell shares on the capital market for instance does not justify a different treatment of the taxable profits for certain football clubs. Once again, the European Commission has found that tax rulings may breach EU State aid rules, because a lower tax rate leads to lower revenues for the state and therefore may constitute an advantage from state resources. Insofar, these cases are reminiscent of the Commission’s spectacular procedures with respect to potential tax benefits in the billions for international companies.
There is good reason for these parallels to transnational companies. The Commission considers professional football to be an economic activity. This is due to the high revenues in various economic sectors, such as advertising, the selling of television rights and the transfers of players. The sources of revenue are linked to the teams’ performance in competitions like the UEFA Champions League. This creates competition between the clubs which could be distorted by potential state aid. The UEFA Financial Fair Play has a similar approach. The joint statement of UEFA and the European Commission therefore stated, that the FFP rules are “consistent with the aims and objectives of European Union policy in the field of State Aid” (European Commission, Joint Statement 21 March 2012, para. 7). Both approaches are aimed at a fair competition between financially independent football clubs. The four Spanish clubs were obliged to repay amounts, in part totaling tens of millions of euros. Even if the actions brought by the Spanish clubs against the Commission’s decisions are still in the nature of current cases and have to be carefully analyzed, they already reflect the following: The Commission is serious about this matter and shows the yellow card to the public financing of professional football clubs.
Spain has already adjusted its legislation on corporate taxation to end the discriminatory treatment which shows the political effect of European state aid rules and its enforcement by the Commission. Sports clubs can no longer rely on the goodwill of the municipalities. Although state aid law has until now barely played a role in professional sport, it is now clear that Member States (and their authorities and entities) are not allowed to grant any economic advantages in this field either. State aid law is a very popular and effective instrument in the protection of fair competition, also for competitors. The Commission’s numerous investigation procedures in recent years have impressively demonstrated this.
Interdisciplinary competition before the Community courts
The current approach may certainly be an economic threat to government-favored professional sports clubs. The risk is obviously not limited to football. Other professional sports such as handball, basketball, ice hockey, motor sports or golf may also become the focus of state aid law. Clubs, shareholders and other stakeholders have to ask themselves where they could have received obvious or concealed grants from the public authorities.
Furthermore, different professional sports can also be in an interdisciplinary competition with regard to state aid. For example, Spanish basketball teams have recently appealed the European Commission’s decision on reduced tax rates to support football clubs (Case T-845/16 QG v Commission). They generally agree with the European Commission’s decision on the issue of granted tax privileges in favour of four Spanish football clubs, but their appeals concern the issue of the possibility to consolidate the accounts of clubs that participate in more than sport. Only the clubs that were able to participate in professional competitions in different sports were permitted to consolidate the accounts in respect of football and basketball. The receipts from football are therefore reduced by the losses from basketball, which leads to a reduced corporate tax to be paid. In the opinion of the appealing basketball clubs, this also constitutes an unfair advantage.
The different types of state aid
State aid law goes far beyond typical and formal subsidies under national law. It may, in particular, concern any kind of contractual service or exchange agreement with public authorities. With regard to professional sports clubs, this may e.g. be tax benefits, advantageous property purchase agreements, stadium financing or rents, the use of municipal real estate, utilization of public resources or direct grants. The same applies to huge tournaments, partially financed by public means.
Hence, state aid law’s sword of Damocles hangs over all such measures. The considerable popularity of sports does, in this respect, not protect against European competition law either. The measures taken within the association and promoting more fairness among the clubs are now joined by the efforts of the Commission, being a further guardian, aiming to ensure less the sporting than the economic protection against distortions of competition.
What clubs and investors must be aware of now
Professional sport clubs and operators have to thoroughly review their contractual relationship with public authorities, bearing in mind the background of European State aid law. The risk of an aid procedure is high in the case of nonnotified support for a sports club, since such proceedings can also be triggered by complaints from competitors, politicians and even individual citizens (supporters). Granting unlawful aid has crucial consequences as underlying contracts might be void. Not all engagements of a public authority could be seen as a fundamental win for the sport. State aid law is competition law and the Commission is about to ensure that authorities do not distort competition by selectively favoring one market participant over another. A level playing field is crucial for clubs who have to operate without subsidies. At the end of the day a sport infrastructure financed with unlawful State aid is constructed on fragile foundations.